By Nicholas Bibby
Copyright, all rights reserved

While franchise disclosure documents and their attendant agreements are the ‘glue’ applied to the initial franchisor/franchisee relationship, the question of ‘who constructed the paperwork’ is both a touchy and legitimate concern for those immersed in the franchise industry.

Historically, three distinct elements have assumed responsibility for developing the documents (although few know or admit that this development trio exists because, and especially within the non-franchise universe, documents penned for legal purposes are normally thought of as attorney-generated). The three players are: attorneys (with or without franchise expertise); franchisors (both active and emerging); and consultants (ranging from brokers that the industry continues to accept with the self-absorbed title of ‘consultant’ to ‘fee for service’ types). And, just as the franchise industry itself is made of up of divergent personalities, business segments (at least 100), experiences, goals, knowledge, and trust levels, it’s also true that the individuals designing documents and agreements are equally, if not more, diverse in all respects.

First, based on years of observation, attorneys are still responsible for the majority of disclosures and franchise agreements. To the uninitiated, that might appear to be perfectly logical and natural, but to those ‘in the know.’ possession of a law degree alone does not qualify one to draft quality, meaningful documents for franchise purposes. Knowledge of contract law is obviously important, but that understanding is trumped every time by franchise industry experience. A non-franchise attorney has few, if any clues concerning the development of quality ‘meaningful and functional’ documents (even with the benefit of crib notes and copies of competitive paperwork) because it is knowledge of the business of franchising and franchise relationships that are crucial in creating the best work. The ‘law’ is only a PART of quality documents; knowing what to memorialize is far more important and always will be. So, only those attorneys with proven franchise experience should be leaned on for the critical role of disclosure and franchise agreement work – and that goes to an even greater extent if the lawyer is working alone with an inexperienced franchisor or without benefit of a ‘proven’ consultant to fill in the most important blanks. Someone in the mix has to know the business of franchising.

Second, and seemingly more the case of late, franchisors are undertaking the task of internally updating and registering documents--and actually, when the facts are considered, who can blame them? Most franchisors are successful entrepreneurs, not rubes in the business world. Given often quoted high fees for renewals and updates, they feel comfortable wrestling with long nights of edits after studying and understanding that which they initially purchased at a dear cost. Emerging franchisors, after a year or two in the business, are very much aware of their segment, marketplace, competition, operational needs, and most likely, the nuances of the documents they live with daily. Although most emerging franchisors engage attorneys initially, they live with their own paperwork, and that is a factor (beyond cost savings) that motivates them to captain internal changes. Who can find fault with a new franchisor electing a do-it-yourself position when sales are slim, growth expectations are lowered, and cash is thin? (Forward-thinking attorneys might be well advised to hold new franchisors close via fees structure and relationship building.) Of course, no logical argument can be made in support of brand-new rogue franchisors that insist on copycat launches using a competitor’s paperwork, and eschew using consultants or receiving any legal input. This type of new franchisor, quite often because of greed, stupidity, and arrogance, will not be deterred from his course of action in spite of the potential damage to themselves and future franchisees. No law short of a moral law stops this activity.

Third, consultants of all description have historically involved themselves with disclosure and franchise agreement work. While it’s true that a seasoned fee-for-service consultant most likely understands franchising in terms of business strategies (as well as critical franchise legal issues) better than an attorney without franchise expertise, attempting to handle the nuances of contracts and other legal matters is dangerous ground for even the most experienced consultant. Of even greater concern should be the handling of legal work by those ‘brokers’ and sales-focused consultants who offer FDD development as part of their overall plan to assume the franchise sales or marketing role with new franchisors. In these cases, the primary objective of the ‘consultant’ is to carve out a profit position as advisor, salesman, and franchise expert within organizations that otherwise have little or no franchise experience. However, even in the case of fee-for-service consulting engagements where the consultant is mentor to new and emerging franchisors, regardless of experience, knowledge, and history dealing with legal documents, it is most foolish to diminish the role of a competent franchise attorney in the overall scheme of quality development. There are simply too many legal details and changes in the law that can be overlooked.

The very best scenario is, as with all things worth doing well, a combination of expertise covering all important issues. Very simply, in terms of new, emerging, and advanced franchisors, the best team, and the best chances for franchisor success, result from three elements: (1) a concept and management team that meets the criteria for franchise feasibility; (2) the mentoring, education, and strategic input from a proven consultant; and (3) the balance struck via participation and legal oversight provided by a knowledgeable franchise attorney. Anything short of that quality team and focus is a shot in the dark, for both franchisor and any potential franchisee investor. 

Although it is not common thinking, in fact, the most important tool in a franchisor’s kit will always be its disclosure documents and agreements, if they are properly conceived and prepared as a memorial to the key attributes of a given franchise. To achieve that end, only the coordinated efforts of a professional team should be considered.